Hype War Goes to Xbox, but PSP Should Thrive

Sony's (SNE) PlayStation Portable, which looked destined for greatness when it arrived nine months ago, finds itself lost in the hype surrounding Microsoft's (MSFT) Xbox 360.

But Sony shouldn't hit the panic button just yet, analysts say.

"The PSP is not dead by any means," says James Lin, an analyst for the Simba Group, an industry research firm. "It's just been slow out of the gate."

Sony launched the PSP in the U.S. to great acclaim earlier this year and sold more than half a million units in the first two days. The device marked the first effort by Sony, the leader in the console game industry for the last 10 years with its PlayStation and PlayStation 2 systems, to enter the portable game market, which has been dominated by Nintendo. Some analysts even believed that the PSP, which can play music and movies and surf the Web through a built-in wireless transmitter, could be a wider threat, potentially eating into sales of Apple's popular iPod digital music devices and other portable multimedia devices.

Right now, the PSP's threat to Nintendo -- much less to Apple -- remains hypothetical. Sales of the PSP are disappointing thus far, particularly this holiday season. Through the end of October, Sony had sold just 1.6 million of the devices after the first days' sales flurry.

Last week, in an earnings-related conference call, GameStop (GME) CEO Richard Fontaine said that PSP sales this holiday season have been "somewhat slower than anticipated."

"The truth is we would have expected it to have more momentum than it has," Fontaine said.

When Amazon.com(AMZN) published its list of top-selling items in November, the PSP was conspicuously absent. Only recently did a PSP package crack Amazon's list of top 10 best-selling video game products; it has yet to show up as a leader in the broader electronics category.